Changing the Conversation about Fairness in Internet Taxation

Earlier today we had the opportunity to present members of Congress with a workable alternative to the unfair and unconstitutional Internet sales tax measure that was rammed through the Senate last year. Other witnesses were given the same opportunity, so it’s a shame they didn’t make the most of it.

Last year, the House Judiciary Committee, led by Chairman Goodlatte, took on the daunting challenge of trying to repair the Marketplace Fairness Act (MFA), a broken bill that emerged from the broken process of the US Senate, who failed to hold a single hearing and then blocked all floor amendments.

The House Judiciary committee’s first response to this challenge was to publish principles to guide any effort to overturn today’s standard, where every business must pay sales tax for any state where it has a physical presence.    The good news is that these principles were sensible, smart and workable. The bad news is that the bill passed by the Senate violated every single one of them.

Chairman Goodlatte, took on the daunting challenge of trying to repair the Marketplace Fairness Act (MFA), a broken bill that emerged from the broken process of the US Senate

Which brings us to today’s hearing, titled, “Exploring alternative solutions on the Internet sales tax issue”.   While the Senate bill can’t even meet the basic principles of fairness, neutrality, simplicity and constitutionality, the House knew it was time to entertain approaches that might actually work.

For our part, we offered an alternative called Home Rule and Revenue Return.  It would treat all businesses the same, whether brick-and-mortar, catalog, or online, subjecting each to the rates, rules, and audits in only the states where they are located.  Our alternative requires sellers to collect sales tax on remote sales using their home rules, then returns that tax revenue to states where purchasers reside.  And our alternative meets all of the Committee principles.

Unfortunately, some other hearing witnesses used their time today trying to revive the old conversation about Internet sales tax, rather than contributing to the new one.

Joe Crosby of MultiState Associates and Stephen Kranz of McDermott Will & Emery testified today about flaws they see in other alternatives (including ours).  Mr. Kranz warned of a “parade of horribles” that would befall businesses if Congress fails to act.  But their only preferred action involves enacting some variant of the flawed and unfair MFA.

Kranz and Crosby are clinging to the old conversation, ignoring critical problems and shouting-down anyone who tries to steer away from MFA’s disastrous course.  Meanwhile, Goodlatte and the Judiciary Committee have already begun a new conversation.

That is why the Judiciary Committee principles are so important. They set the stage for a new conversation – one that has a chance to produce workable solutions.

Crosby, Kranz and other longtime participants in the old conversation know a lot about the challenges of navigating sales tax policy, and could have a great deal to contribute to the new conversation about real solutions. The first step is letting go of what doesn’t work.

2 replies
  1. John Miller
    John Miller says:

    As a small businessman I applaud your approach which does not crush the small business with an administrative nightmare, trying to keep up with close to 10,000 different and changing sales tax rates across this country. Instead of adding yet another burden to weary small businesses, the Home Rule and Revenue Return approach would be a welcome alternative. I recognize that we would have to add to our home state reporting the amount of our sales by state, but that is much easier than having to report and remit very small amounts to other states. And, personally, I still think that for sales under 2 or 3 million per year, there should not need to be any reporting by state, simply a total for all out-of-state sales tax collected that would accompany the standard home state sales tax report. They can split it up by formula.

    Reply

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  1. […] online, or catalog) to continue to file sales tax returns in their own states. The Home Rule & Revenue Return would give each state the opportunity to join a multi-state compact to enable revenue […]

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